Since You Asked

A first-class reason to stockpile stamps

‘Royal Mail has increased the price of first and second-class stamps by 14p to record highs, after it was given freedom to set its own prices as it heads towards privatisation. A first-class stamp will now cost 60p, with the slower second-class service priced at 50p from April 30.’ – Financial Times

Cue panic buying of stamps
Perhaps a little. Some shops reckon they’re out of stamps. Others say they have stock, and you can always order in bulk from Royal Mail.

A risk-free investment opportunity?
Not quite. I bought almost £300-worth of stamps and am now an unsecured creditor of Royal Mail: it’s always possible that the company will simply not provide the service I thought I was paying for.

Is that likely?
Outright default is unlikely, I am sure. Chipping away at the value of what is on offer is always possible – anyone who has tried to spend air miles can testify to that.

But it didn’t discourage you from plunging in.
I think the risk is worth the reward. I suppose I could have ordered £3,000-worth of stamps, or £300,000, but I don’t really plan to become a stamp dealer. For more modest purchases the investment looks like a no-brainer. It’s very unusual to have access to an asset whose value is guaranteed to increase by 39 per cent overnight. Normally arbitrageurs would leap in to buy now and sell later so the price today would converge with the price tomorrow. But Royal Mail has the absolute right to set the price of a stamp.

Not in the secondary market.
True. We may well find that very few people buy stamps over the counter for a while, buying instead cheap stamps from the stockpilers. But it’s such a small and occasional purchase for many people that I suspect simplicity will win out and this secondary market is going to be limited.

Fattening the company up for privatisation?

Potential investors would have to be pretty thick to mistake one month’s windfall sales for a trend and the stockpiling will presumably make it hard to judge what demand really is for postage at a more expensive rate.

The new price does seem prohibitive.

Royal Mail is adamant that UK stamp prices are still among the best in Europe.

Is that true?
Well, I’ve always thought that when you think about what is involved to get a letter from one end of the country to another, stamps are a bargain. But less so at 60p a pop, I’ll admit.

And compared with other countries?
It’s not as much of a steal as Royal Mail would like you to believe. If you’re posting a heavy letter second class and make various adjustments for purchasing power parity, you can get British postage to look quite cheap. But when my colleagues on the BBC’s More or Less radio programme compared the cost of posting a couple of sheets of paper, first class, they concluded that the British postal service was about to become one of the most expensive in the world.

Damn lies and statistics, eh?
Well, perhaps. The truth is there are so many variables it’s hard to make reasonable comparisons. It’s very costly to post a letter in Peru, for instance, but they do have the Andes to contend with. And it’s pricey to post a letter in Jamaica, but apparently your letter can travel almost anywhere in the western hemisphere for the same price.

The comparison everyone is making is that stamps will be more expensive soon.
Quite so. No wonder so many people are stocking up. Hopefully the experience will set George Osborne thinking.

Hasn’t he done enough thinking? The pasty tax and all that.
Ah yes, the pasty tax. Imagine if pasties could be stockpiled like stamps.

Imagine? Some of them look like they could survive a nuclear winter.
By pre-announcing a tax on pasties Mr Osborne could stimulate the economy by encouraging stockpiling today. So, imagine what might happen if the chancellor announced next year he would increase VAT again. Everyone would have an incentive to buy now anything that could be stockpiled before prices increased. Macroeconomists such as Simon Wren-Lewis of Oxford university have argued that a pre-announced VAT rise is one of the least damaging ways for a government to implement an austerity programme.

Maybe somebody should tell the chancellor.
I’ll write him a letter. First class.

Also published at ft.com.

21st of April, 2012Since You Asked • Comments off